Section IV - Putting the Plan to Work: Building a Competitive Edge
Chapter 14
Global Aspects of Entrepreneurship (PPT 14.1)
Part One: Learning Objectives
1.
Explain why "going global" has become an integral part of many small companies' strategies.
2
Describe the principal strategies small businesses have for going global.
3.
Explain how to build a thriving export program.
4.
Discuss the major barriers to international trade and their impact on the global community.
5.
Describe the trade agreements that will have the greatest influence on foreign trade in the 21st
century-- GATT and NAFTA.
Part Two: Lesson Plan
I.
Why Go Global? (PPT 14.2)
Today's business environment is very competitive and businesses can no longer consider
themselves to be domestic companies if they truly want to compete.
Advantages of going global include:
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Offset sales declines in domestic markets
Increase sales and profits
Extend the product life cycle
Lower manufacturing costs
Improve competitive position
Raise quality levels
Become more customer-oriented
Questions to address:
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Are there profitable markets?
Do we have the necessary resources?
Do we understand the cultures, economic systems and other unique aspects of
prospective trading nations?
Are there viable exit strategies?
Can we afford not to go global?
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II.
Strategies for Going Global (PPT 14.3 thru 14.10)
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III.
Employing a Presence on the World Wide Web
Trade Intermediaries
 Export Management Companies
 Export Trading Companies
 Agents
 Resident Offices
 Foreign Distributors
Joint Ventures
Foreign Licensing
International Franchising
Counter trading and Bartering
The Exporting Process (PPT 14.11 thru 14.16)
Anyone can export. Start by developing an export business plan:
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Analyze your products and services.
Analyze your commitment.
Research markets and pick your target.
Develop a distribution strategy.
Secure financing.
Develop a shipping strategy.
Develop contracts to ensure collection of receivables.
YOU BE THE CONSULTANT – Opportunity or Risk?
Fareedom Hartoqa, a native of Jordan, now works in Saudi Arabia as a trade specialist. He is
interested in establishing business relationships with U.S. firms that can supply much needed oil and gas
production technology and equipment. He has visited and met with several Texas based companies to
explore the possibilities.
Q1. If you were one of the undecided company CEO’s involved with Mr. Hartoqa’s visit, what questions
would you raise?
Q2. What are the factors that you would evaluate in the determination of whether the opportunities
outweigh the risk?
A1. The CEO would raise the same questions as with any prospective business partner. Those questions
would focus on product specifications, quantities and price, financial terms, shipping, government
regulations and others unique to the transaction.
A2. The standard benefit/cost analysis will determine the profitability and feasibility of the project. Other
factors in this case might include security issues, insurance against government lockouts, and unique
cultural factors about the country.
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IV.
Barriers to International Trade (PPT 14.17 thru 14.19)
Many U.S. firms are simply ignorant about exporting opportunities. In addition, some
governments use a variety of barriers that block free trade among nations in an attempt to
protect their own industries. Foreign firms are restricted access into global markets and
all consumers suffer and pay the price.
Barriers to international trade include:
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V.
The "I'm too small to export" attitude
Lack of Information
Lack of Available Financing
Tariffs
Quotas
Embargos
Dumping
Political Barriers
Cultural Barriers
International Trade Agreements (PPT 14.20)
In an attempt to boost world trade, several organizations and agreements between nations
have been created. The most prominent include:
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The General Agreement on Tariffs and Trade (GATT) was designed to reduce
tariffs among member nations and to facilitate trade across the globe. The World
Trade Organization replaced GATT in 1995.
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The North American Free Trade Agreement (NAFTA) created a free trade area
between Canada, Mexico, and the United States.
(PPT 14.21, 14.22)
YOU BE THE CONSULTANT – Safe Water Systems
Safe Water Systems developed a solar water pasteurizer that has been exported to more than 50
countries. The system uses the sun’s rays and requires virtually no maintenance. In addition to the
successful development of a profitable system, thousands of lives have been enhanced and saved thanks
to a new and inexpensive source of clean water.
Q1. What additional steps can a small company like Safe Water Systems take to more effectively
distribute its needed products in developing countries?
Q2. In your opinion, should the U.S. government intercede with governments of other countries to ask
them to eliminate any barriers to the distribution of life-saving products?
A1. There are many expansion options for a company like Safe Water Systems to consider, including
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government partnerships and grants, joint ventures with other companies and countries, expanded or
varied product lines to better suit new markets and so on.
A2. Students will provide a variety of ideas and options regarding government participation.
Part Three: Suggested Answers to Discussion Questions
1.
Why must entrepreneurs learn to think globally?
Today's business environment is very competitive and often forces domestic business owners to
look beyond the traditional boundaries of the U.S. Global markets are growing and offer many
market niche opportunities.
2.
What forces are driving small businesses into international markets?
Political, social, cultural, and economic forces are driving small businesses into international
markets. Powerful technology and increased access to information make it easier for companies
of all sizes to engage in international trade.
3.
What advantages does going global offer a small business owner? Risks?
Advantages include:
Offsetting sales declines in domestic markets
Increasing sales and profits
Extending product life cycles
Lowering manufacturing costs
Improving competitive position
Raising quality levels
Becoming more customer-oriented
Risks include:
Entrepreneur's unwillingness to commit adequate resources of time, people, and
capital into global market
Possibility of not making money
Being insensitive to cultural differences
Not developing and maintaining global attitude
4.
5.
Outline the eight strategies that small businesses can use to go global.
 Launch a World Wide Web Site
 Rely on trade intermediaries
 Develop joint ventures
 Consider foreign licensing
 Consider international franchising
 Use countertrading and bartering
 Establish international locations
 Develop an export business plan
Describe the various types of trade intermediaries small business owners can use. What functions
do they perform?
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Export Management Companies (EMCs)-- are merchant intermediaries that provide small
businesses with a low-cost, efficient, independent international marketing department. Their
focus is on exporting and they typically do not handle competing firms.
Export Trading Companies (ETCs)-- are businesses that buy and sell products in a number of
countries and offer a wide variety of services - exporting, importing, shipping, storing, and
distributing - to their clients who may be competitors. They focus on long-term relationships.
Manufacturer's Export Agents (MEAs)-- are businesses that act as international sales
representatives in a limited number of markets for various non-competing domestic companies.
They are commissioned based and focus on short-term commitments.
Export Merchants--Export merchants are domestic wholesalers who buy goods from many
domestic manufacturers and then market them in foreign markets. Most export merchants
specialize in particular industries and often carry competing lines.
Resident Buying Offices--A government- or privately-owned operation established in a country
for the purpose of buying goods from businesses there. The buying office handles all the details
of exporting.
Foreign Distributors--Domestic small companies export their products to foreign distributors
who handle all of the marketing, distribution, and service functions in the foreign country. They
offer exporting small businesses the benefits of knowledge in their local markets, the ability to
cover a given territory thoroughly, and prompt sales and service support.
6.
What is a domestic joint venture? A foreign joint venture? What advantages does taking on an
international partner through a joint venture offer? Disadvantages?
Domestic joint venture--two or more U.S. small businesses form an alliance for the purpose of
exporting their goods and services abroad.
Foreign joint venture--a domestic small business forms an alliance with a company in the target
nation.
Advantages of international joint venture:
 Penetrate protected markets.
 Lower production costs.
 Share risks and high R&D costs.
 Gain access to marketing and distribution channels.
Disadvantages of international joint venture:
 Failure of the venture.
 Relationships that sour.
 Becoming overly dependent on the partner.
7.
What mistakes are first-time exporters most likely to make? Outline the steps a small company
should follow to establish a successful export program.
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First-timer exporters often fall victim to 12 mistakes:
1. Failure to obtain qualified export counseling and to develop a master international marketing
plan before starting an export business.
2. Insufficient commitment by top management to overcome the initial difficulties and financial
requirements of exporting.
3. Insufficient care in selecting overseas distributors.
4. Chasing orders from around the world instead of establishing a basis for profitable operation
and orderly growth.
5. Neglecting export business when the U.S. market booms.
6. Failure to treat international distributors on an equal basis with domestic counterparts.
7. Assuming that a given marketing technique and product will automatically be successful in
all countries.
8. Unwillingness to modify products, meet regulations or cultural preferences of other
countries.
9. Failure to print service, sale, and warranty messages in locally understood languages.
10. Failure to consider use of an export management company.
11. Failure to consider licensing or joint venture agreements.
12. Failure to provide readily available servicing for the product.
8.
What are the benefits of establishing international locations? Disadvantages?
Benefits of establishing international locations include:
 Start-up costs are often lower in foreign countries.
 Foreign countries often have lower labor costs.
 Foreign markets offer attractive sales and profit possibilities.
 The company's competitive skills are strengthened and its reputation is enhanced.
Disadvantages of establishing international locations include:
 The substantial investment in establishing locations in foreign lands can be too draining on
small businesses.
 It is often difficult to find the right person to manage an international office.
 Often times, foreign business infrastructures are in disrepair or are nonexistent.
9.
Describe the barriers businesses face when trying to conduct business internationally. How can a
small business owner overcome these obstacles?
Three major domestic barriers to international trade are common:
Attitude of "I'm too small to export"--The first step to building an export program is recognizing
that the opportunity to export exists.
Lack of Information--Entrepreneurs should thoroughly research the possibility of going global
and use every possible resource available to them such as government and private organizations'
international exporting and marketing information, in order to make valid decisions. Companies
must also be willing to make the necessary adjustments to their products and services,
promotional campaigns, packaging, and sales techniques in foreign markets.
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Lack of Available Financing--Many entrepreneurs cite lack of financing as a major barrier to
international trade. Before embarking on an export program, entrepreneurs should have available
financing lined up.
International barriers include tariffs, quotas, embargoes, dumping, political barriers, and cultural
barriers. Entrepreneurs should be aware of and examine all international barriers before building
their export programs. If the barriers are too cumbersome, the venture may not have a high
probability of success.
10.
What is a tariff? A quota? What impact do they have on international trade?
Tariffs are taxes or duties that a government imposes on goods and serves imported into that
country. In essence, tariffs raise the price of imported goods making them less attractive to
consumers, and serves to protect the makers of comparable domestic products and services.
A quota is a limit on the amount of a product imported into a country. Quotas help protect
domestic markets by limiting quantities of foreign products.
11.
What impact have the GATT, WTO, and NAFTA trade agreements had on small companies
wanting to go global? What provisions are included in these trade agreements?
GATT was designed to reduce tariffs among member nations and to facilitate global trade.
GATT has enabled small businesses to more easily enter the global market by lowering tariffs or
trade barriers. The World Trade Organization was established to settle trade disputes among
member nations.
NAFTA created a free trade area between Canada, Mexico, and the United States. All three
countries agreed to knock down trade barriers, both tariff and non-tariff. NAFTA's provisions
include: tariff reductions, the elimination of non-tariff barriers, simplified border processing,
tougher health and safety standards, and increased protection of patents, copyrights, and
trademarks.
12.
What advice would you offer an entrepreneur interested in launching a global business effort?
Entrepreneurs should thoroughly investigate foreign markets.
They should familiarize
themselves with foreign customs, languages, and cultures. Learn to think and act globally and
make sure employees are trained in the same manner. Above all, weigh the pros and cons of
each foreign market. If you make the decision to go global, be willing to put all the necessary
resources behind the venture to increase your probability of success.
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Part Four: Lecture or Critical Thinking Case Studies-Not Found In Student Text
EXPORTING JUNK DOWN UNDER
THE TWELVE MOST COMMON EXPORT MISTAKES
EXPORTING JUNK DOWN UNDER
Bill Rucker never intended to get into the export business. In fact, he never even suspected that
he could get into it. Rucker, founder and chief executive officer of Tracom, Inc., buys used diesel
engines and parts and resells them to re-manufacturers. In short, his company operates a highly
specialized junkyard, concentrating in big-truck engines, parts, and transmissions. What's even more
unusual about Tracom is that 40 percent of its sales come from global markets. Each year, Rucker
exports more than $1 million worth of old crankshafts, cylinder blocks, steering boxes, diesel injectors,
and other junk. "If I can export," he says incredulously, "anyone can.” Can you imagine going into a
bank and asking to borrow $3 million to buy junk for export?"
Rucker succumbed to his entrepreneurial tendencies at age nineteen when he opened an auto
repair shop, which after three years, he gave up to buy a gas station. Then he started a company to buy
used school-bus transmissions from junkyards and resell them to re-manufacturers. To boost his
business, Rucker put an ad in a local magazine offering transmissions for sale. Somehow that magazine
found its way into the hands of Leon Will, a truck salvage dealer in Australia. "I got a call one day from
Adelaide (Australia)," he recalls. "There was a lot of scratchiness on the phone. He said, `how you
doin', mate?' I was very surprised. What was this guy calling me for? He needed some used Ford
steering boxes, and I said I'd try to get them. I called up a guy I knew that had one hundred steering
boxes and wanted $5 apiece for them. So I called Leon back and said I wanted $25 apiece. He said that
was the greatest thing he'd ever heard. He sent me $2,500, and in the end we shipped him $10,000 worth
of parts. I'd never done anything outside Fort Worth before. It was exciting. That's what made me want
to do more exporting."
In his dealings with Leon Will, Rucker recognized that foreign customers generally are not as
well off as Americans and that they tend to rebuild engines over and over again rather than buy new ones.
Because he already had experience doing business in Australia, Rucker decided to actively seek orders
there. Using an industry directory of truck dealers, he found Detco Australia, one of the largest rebuilders and distributors of diesel engines in the world. When Rucker filled an order for $50,000 worth
of diesel engines, he was officially in the export business.
The heart of Rucker's business is the intelligence network that enables him to find engines and
engine pans, which usually are scattered in thousands of scrap yards and sheds across the land. "We've
taken an industry that was disorganized and disjointed and brought a little organization to it," he
explains. Half of Tracom's supply comes from salvage yards, trucking companies, and truck dealers.
Another third of its supply comes from people offering Rucker their junk for sale. The balance of
Tracom's supply comes from independent parts dealers-- junk bird dogs that search out needed parts, buy
them on the spot, and resell them to businesses like Rucker's.
Recognizing the value of a comprehensive inventory database, Rucker developed a system, now
computerized, to track his own parts inventory as well as the pans available in salvage yards across the
country. The database contains more than 100,000 items, one third of which Rucker actually owns; the
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rest is extended inventory-items that other salvage yards have for sale. When a customer requests a
specific part, Rucker lets his computer do the search. "It takes about four keystrokes," he says. The
computer system essentially allows him to match supply with demand. He recently modified the system
so that customers can tap directly into it to check on the availability of a particular part-- a valuable
service for foreign customers.
Shortly after his first big sale to Detco Australia, Rucker packed his bags and headed down under
to drum up more business. While there, he called on Detco's president and struck a deal to be its sole
U.S. supplier of engines and components. A year later, he trekked to England with the same purpose and
made similar deals with re-manufacturers there.
As successful as he was drumming up export business, Rucker had trouble back home-- getting
export financing. Banks balked at such international deals, citing them as too risky. "I went to banks
with letters of credit that were solid," he recalls. "Bankers looked at them and said, ‘You've never done
it’ or ‘You don't have enough hard assets.’ I went to the biggest bank in Fort Worth. They said a letter
of credit didn't guarantee that I would get the goods or ship them.” Rucker financed his early deals by
selling his domestic accounts receivable to factors, an expensive source of funds.
Then Rucker found Vijay Fozdar and Fred Waldkoetter, two entrepreneurs who had launched
Bristol International, Ltd., a trade merchant bank specializing in financing foreign sales. "Very few banks
have the international capability to help small companies," says Fozdar. "We wanted to be the training
wheels for small companies [selling in international markets]." After his past experience with bankers,
Rucker at first was dubious about Bristol International. Fozdar understood, "He had a need for financing,
but he had reached all the dead ends and was frustrated," he says. Rucker approached Bristol with a
$50,000 deal to ship engines to Australia. Bristol approved the deal and released the funds that same day
before any papers had been signed. Finally, with a source of financing, Rucker could focus on building
his export business. "I'd like to add one big foreign customer each year," he says.
Rucker has discovered many benefits in exporting other than increased profitability. "When
you're dealing internationally," he says, "you're dealing with people a cut above. It tends to raise you to
their level. You have to be as professional as the $500 million company you' re selling to. It's also
helped me focus my business. It's made me much more aware of world issues and broadened my
horizons."
1.
2.
3.
Why do small businesses neglect international markets?
What is the principal barrier to export markets that Rucker faced?
What suggestions can you offer small businesses wanting to break into foreign markets by
exporting?
Sources: Stephen D. Solomon, "The Accidental Trader," Inc., March 1990, pp. 84-89.
THE TWELVE MOST COMMON EXPORT MISTAKES
Exporting can be intimidating, especially for an inexperienced small business owner, and
overcoming export barriers puts an extra burden on small companies that usually have thin resources.
Patrick M. Williams, chairman of Stanley Industrial Corporation, a small maker of ventilating equipment,
chooses not to export because of the problems his former employer had in foreign markets. “It's not
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worth the hassle," he explains.
When a small business runs into export trouble, it is usually because it fell victim to one or more
of the twelve most common mistakes that exporters make:
1.
2.
3.
4.
5.
6.
7.
Not obtaining qualified export counseling and developing a master international
marketing plan before starting an export business. To be successful, a firm first must
define its goals, objectives, and the problems it may encounter. Second, it must draw up
a plan to achieve these objectives despite the problems involved. Unless the firm is
fortunate enough to have a staff with considerable export expertise, it may not be able to
take this crucial first step without qualified outside guidance.
Not obtaining enough commitment by top management to overcome the initial difficulties
and financial requirements of exporting. Although the early delays and costs of
exporting may seem difficult to justify when compared with established domestic trade,
the exporter should take a long-range view and shepherd his international marketing
efforts through these early difficulties. If a good foundation is laid for export business,
the benefits derived should eventually outweigh the investment.
Not taking sufficient care in selecting overseas distributors. The choice of each foreign
distributor is crucial. The complications of overseas communications and transportation
require international distributors to act with greater independence than their domestic
counterparts do. Also, because a new exporter's history, trademarks, and reputation are
usually unknown in the foreign market, foreign customers may buy on the strength of a
distributor's reputation. A firm should therefore carefully evaluate the personnel
handling its account, the distributor's facilities, and the management methods employed.
Chasing orders from around the world instead of establishing a basis for profitable
operations aid orderly growth. If exporters expect distributors to promote their
accounts, the distributors must be trained, and their performance must be continually
monitored. This requires a company to put a marketing executive in the distributor's
geographical region. New exporters should concentrate on one or two geographical
areas until there is sufficient business to support a company representative. Then, while
this initial core area is expanding, the exporter can move into another geographical area.
Neglecting export business when the U.S. market booms. Too many companies turn to
exporting when business falls off in the United States. Then when domestic business
starts to boom again, they neglect their export trade or relegate it to a secondary place.
Such neglect can seriously harm the business and motivation of their overseas
representatives, strangle the U.S. company's own export trade, and leave the firm without
recourse when domestic business falls off once more. Even if domestic business remains
strong, the company may eventually realize that it has succeeded only in shutting off a
valuable source of additional profits.
Not treating international distributors on an equal basis with domestic counterparts.
Often companies have institutional advertising campaigns, special discount offers, sales
incentive programs, special credit term programs, warrant offers, and the like in the U.S.
market but fail to offer similar assistance to their international distributors. This is a
mistake that can destroy the vitality of overseas marketing efforts.
Assuming that a given market technique and product will automatically be successful in
all countries. What works in one market may not work in others, and so each market has
to be treated separately.
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8.
9.
10.
11.
12.
Not being willing to modify products to meet other countries' regulations or cultural
preferences. Foreign distributors cannot ignore local safety and security codes and
import restrictions. If necessary modifications are not made at the factory, the distributor
must make them-usually at a greater cost and perhaps not as well. Also note that the
resulting smaller profit margin makes the account less attractive.
Not printing service, sales, and warranty messages in the local language. Although a
distributor's top management may speak English, it is unlikely that all sales personnel (let
alone service personnel) have this capability. Without a clear understanding of sales
messages or service instructions, these persons may be less effective in performing their
functions.
Not using an export management company. If a firm decides that it cannot afford its own
export department (or has tried one unsuccessfully), it should consider appointing an
appropriate export management company (EMC).
Not considering licensing or joint venture arrangements. Import restrictions in some
countries, insufficient personnel/financial resources, or a limited product line causes
many companies to dismiss international marketing as unfeasible. Yet many products
that can compete on a national basis in the United States can be successfully marketed in
most other markets in the world. A licensing or joint venture arrangement may be the
simple, profitable answer to any reservations. In general, all that is needed for success is
flexibility in using the proper combination of marketing techniques.
Not providing readily available servicing for the product. A product without the
necessary service support can acquire a bad reputation in a short period, potentially
preventing further sales.
1. What steps can a small business owner beginning an export program take to avoid these twelve
mistakes? Why do most small business owners shy away from exporting?
Sources: Martha E. Mangelsdorf, "Unfair Trade," Inc., April 1991, pp. 28-36; A Basic Guide to
Exporting (Washington. DC: U.S. Department of Commerce) 1986), pp.85-86.
Part Five: Supplemental Readings
"Small Firms Going Global," Jim Ostroff. WWD, Feb. 28, 1997, Vol. 173, No. 40, p. S30.
"Firms with Global Goals Can Learn Exporting Basics at ITC," Leslie Rosewater. Memphis Business
Journal, Sept. 23, 1996, Vol. 18, No. 20, p. 34.
"Think Big; The Net Gives Small Businesses a Reach They Once Only Dreamed Of," Jim Carlton. The
Wall Street Journal, June 17, 1996, p. R27.
"A Global Reach For Small Firms," James Worsham. Nation's Business, Oct. 1995, Vol. 83,
No. 10, p. 40.
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